Which of the Following Statements Is False

question 7

Multiple Choice

Which of the following statements is false?

• A) When stocks are perfectly positively correlated, the set of portfolios is identified graphically by a straight line between them.
• B) An investor seeking high returns and low volatility should only invest in an efficient portfolio.
• C) When the correlation between securities is less than 1, the volatility of the portfolio is reduced due to diversification.
• D) Efficient portfolios can be easily ranked, because investors will choose from among them those with the highest expected returns.

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Definitions:

In-the-Money

An option is considered in-the-money when it has intrinsic value, meaning that for a call option the market price of the asset is above the strike price, and for a put option, it's below the strike price.

Strike Price

The fixed price at which an option's holder has the right to purchase (if a call option) or sell (if a put option) the underlying asset or commodity.

Option Premium

An option premium is the price that a buyer pays to the seller for an options contract, which gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified strike price.

Conversion Price

The predetermined price at which convertible securities can be exchanged for common stock.